Die with Zero: Getting All You Can from Your Money and Your Life

by Bill Perkins

Laundry is just one example; the same logic applies to any undesirable chore, like housecleaning. To me this kind of outsourcing always seemed like a no-brainer—so much so that I started doing it in my twenties, when I had a much lower income. Even then, I would choose to spend a Saturday morning rollerblading in Central Park and going to brunch at Sarabeth’s rather than cleaning my apartment. And thank the Lord that I chose to spend that money—because I now have lifelong memories of many pleasant weekends. The more money you have, the more you should be using this tactic, because your time is a lot more scarce and finite than your cash. I am constantly trading money back into time. I’ll never get more than 24 hours in a day, but I can do my utmost to free up as much of that finite time as I possibly can.

People who spend money on time-saving purchases experience greater life satisfaction, regardless of their income.

So how do you apply this logic to your spending decisions? When you face a choice, such as whether to go on a trip on your next vacation or to save your money for later, ask yourself, Would I rather have one trip now, or two such trips x years from now? Here’s how to figure out what x is.

Sometimes by waiting, you can use the extra money to buy a significantly better version of the same experience. I can tell you, for example, that experiencing Las Vegas at 40 is much better than Las Vegas at 20, assuming you have significantly more money at 40 than at 20. It’s like two different Las Vegases.

Rule No. 7: Think of your life as distinct seasons.

Because of this eventual finality of all of life’s passing phases, you can delay some experiences for only so long before the window of opportunity on these experiences shuts forever.

Being aware that your time is limited can clearly motivate you to make the most of the time you do have.

We’ve all experienced some version of this effect when going on vacation in a new place. As tourists, we know all too well that we have only a week or however long at our destination—so we plan ahead to make sure we pack in as many landmarks, tours, activities, and other experiences unique to the place we’re visiting as we can. If we’re visiting friends, we make sure to spend plenty of time with those folks, and we try to savor every moment. In other words, we make a full and conscious effort to treat our time as the scarce resource that it is.

In general, using the time-buckets approach will make you begin to realize that some experiences are better done at certain ages.

This list is the opposite of the so-called bucket list, which is typically a single accounting of all the things you hope to do before you “kick the bucket,” so to speak. The more traditional bucket list is usually put together by an older individual who, when confronted with their mortality, begins to scratch out a list of activities and pursuits they not only haven’t done yet but now feel compelled to do quickly, before time runs out.

By contrast, by dividing goals into time buckets, you are taking a much more proactive approach to your life. In effect, you’re looking ahead over several coming decades of your life and trying to plan out all the various activities, events, and experiences you’d like to have. Time buckets are proactive and let you plan your life; a bucket list, on the other hand, is a much more reactive effort in a sudden race against time.

Rule No. 8: Know when to stop growing your wealth.

The people you share experiences with truly affect the quality of the experience—and nowhere is that more true than at a once-in-a-lifetime event.

But as you chip away at those student loans—and assuming your income rises faster than your spending—you typically start to save money, which means your net worth can start to grow from negative to positive. And it becomes more and more positive over time: If you stay gainfully employed, your net worth generally keeps rising, regardless of whether the rise is slow or fast. I’m not saying that’s how it should be—that’s just how it usually is.

Or look at the rates of homeownership, since owning your own home is a common way to build wealth. (You might not think of your home in the same way as you do about money in the bank, but there’s no denying that owning a house adds to your net worth.)

This is where my advice diverges from what most people do: You should find that one special point in your life when your net worth is the highest it will ever be. I call that point your net worth peak, or just “your peak.”

But there’s an even more important reason for a net worth peak: your goal is to die with zero. If your net worth keeps climbing, rising from your sixties to your seventies and beyond, then there is no way you will die with zero. So, at some point you must actually start dipping into your lifetime savings; if you don’t, you will end up with unspent money, which means you haven’t acquired as many experience points as you could have. That is why I say your net worth reaches a level at which it is the highest it should ever be—after which you must start spending it down on experiences while you can still extract a lot of enjoyment from those experiences. That point, in effect, is your peak.

So what is that threshold? Well, it’s not the same number for everybody, because the cost of living varies based upon where you live, among other factors. And if you’re supporting people other than yourself, you obviously will need more savings than if you are a family of one. But for everybody, the survival threshold is based on both your annual cost of living and the number of years you expect to live from the present day.

Well, to get a very rough answer—not the final answer—you would just multiply your annual cost of survival, the cost to live one year, by the number of years you’ll be spending that amount, years left to live: (cost to live one year) × (years left to live) = $12,000 × 25 = $300,000 Again, this is not the final answer. The real amount you need to save up is actually much lower than $300,000. Why? Because your nest egg doesn’t just sit there while you dip into it year after year. Assuming you’ve invested it in a typical stock/bond portfolio, your money is usually earning interest, working to bring in income even when you are no longer working. Therefore, whatever interest it’s earning above inflation (whether that interest is 2 percent or 5 percent or whatever) is helping to offset the cost of your withdrawals.

Suppose you start with $212,000 in savings and you spend $12,000 your first year. How much do you end up with after the first year? Well, you don’t end up with just $200,000. Instead you end up with closer to $206,000, because even if you withdrew the entire $12,000 at the beginning of the year (such that the first $12,000 earns you no interest), the 3 percent you earn on the remaining $200,000 earns you a full $6,000. You can extend this process out for the same annual withdrawals and the same annual interest for the full 25 years.

This fixed annual withdrawal is an annuity (much like the annuities you can buy from an insurance company), and there’s a technical formula (called the present value formula for an annuity) for calculating how much you’d need to start with to generate a given annuity. If you were to plug these numbers into that formula, you would find that the initial $212,000 will last you nearly until the end. (To be precise, you need to start with $213,210.12 if you want your money to last 25 years at 3 percent interest and a $12,000 annual withdrawal.)

This is why you need only a portion of the annual cost of survival times the number of years: Interest will earn you the rest.

So what is that fraction? As a simple rule of thumb, I suggest 70 percent. In our example above, the fraction is actually just over 71 percent (because $213,210.12 is 0.7107 times $300,000). If the interest rate were higher, the fraction you’d need in savings would be lower.

Again, keep in mind that this survival threshold is the bare minimum. Once you’ve met that survival threshold, you probably won’t want to retire just yet—it still might make sense for you to keep working to earn money for a higher quality of life than the basic survival threshold can provide. But now you can safely start thinking about at least the possibility of cracking open your nest egg. Once you’ve taken care of your worries about mere survival, you can then start thinking about your net worth peak as a date rather than a number.

Keep in mind, too, that you can use multiple sources of assets toward reaching your survival threshold. That is, if you have equity in your house, you can decide to downsize and sell the house—or, if you’d prefer to stay in your current home, you can take out a reverse mortgage, one way to tap into the value of your property.

Now you can afford to think of about when to break open your nest egg for maximum lifetime fulfillment.

Many of us have been trained to think that our plan for drawing down our savings should be framed in terms of numbers—that is, that once we reach a certain amount in savings, we can then retire and start living off those savings. And there’s no shortage of suggestions about what that number should be. The most simplistic advice, which can’t possibly be right, is for everyone to aim for a single number, such as $1 million or $1.5 million, no matter who you are or where you live. (How can $1 million in savings be the right number for both the healthy, world-traveling person living in San Francisco and the quiet homebody living in, say, Omaha?)

But a number should not be most people’s main goal. One reason is that, psychologically, no number will ever feel like enough.

To understand why you should think in terms of a date, not a number, you need to recall that enjoying experiences requires a combination of money, free time, and health. You need all three—money alone is never enough. And for most people, accumulating more money takes time. So by working more years to build up more savings than you actually need, you are getting more of something (money), but you are losing even more of something at least as valuable (free time and health). Here’s the bottom line: More money doesn’t equal more experience points.

So, for example, $2.5 million does buy you a better quality of life than $2 million, all other things being equal—but all other things are usually not equal! That’s because for every additional day you spend working, you sacrifice an equivalent amount of free time, and during that time your health gradually declines, too.

Of course, some people already think about when to stop growing their savings in terms of a date. The most obvious dates are age 62 (the earliest date you can choose to start collecting Social Security benefits) and age 65 (when you become eligible for Medicare). And, depending on when you were born, you can start receiving your full Social Security benefits somewhere between 66 and 67. Increasingly, given rising life expectancies, retirement experts recommend that middle-income retirees wait until they’re 70 to claim Social Security benefits, at which point they can receive more than 100 percent of their full benefits.

Here’s what we see: For most people, the optimal net worth peak occurs at some point between the ages of 45 and 60.

Accumulation of Net Worth Traditionally, people continue to increase their net worth until they stop working, and are afraid to dip much into their principal even after retirement. But to make the most of your hard-earned money, you must crack open your nest egg earlier (starting to spend down your savings sometime between 45 and 60 for most people) so that you end, theoretically, with zero.

What does all this mean for you? It means that unless you are an exception, you ought to start spending your wealth down much earlier than what is traditionally recommended. If you wait until you’re 65 or even 62 to dip into your nest egg, you will almost certainly end up working longer than necessary for money you will never get to spend.

Another strategy for squeezing the most experiences out of your early golden years without quitting your job is to cut back on your work hours if you can. If you’re lucky enough to be working for an employer that offers a formal “phased retirement” program, definitely look into it.

However, the percentages are higher in some industries, such as education and high tech. The good news is that many more employers have informal programs, with managers offering phased retirement to high performers and employees with in-demand skills.

Rule No. 9: Take your biggest risks when you have little to lose.

But so many people don’t take advantage of those times when they can easily take risks. And I think it’s because they magnify the downside in their minds—they think of the absolutely worst-case scenario, like homelessness, even if that scenario is not remotely realistic. As a result of that kind of fearful thinking, they don’t recognize the asymmetry in the risk they are facing: In their minds, it’s as if disastrous failure is as likely as any kind of success.

First, whatever level of risk you’re comfortable with, whatever bold moves you might contemplate for your life, you’re generally better off making those moves earlier in your life. Again, that’s when you have a higher upside and a lower downside.

Second, don’t underestimate the risk of inaction. Staying the course instead of making bold moves feels safe, but consider what you stand to lose: the life you could have lived if you had mustered the courage to be bolder. You’re gaining a certain kind of security, but you are also losing experience points.

Third, I’ll remind you that there’s a difference between low risk tolerance and plain old fear. Fear tends to take the actual risk and then blow it out of proportion.